More free money for financial institutions: converting prefered share to common stock

Feb. 23 (Bloomberg) -- The Obama administration, which says it doesn’t want to nationalize U.S. banks, may find itself taking another step in that direction if it converts the government’s preferred shares in Citigroup Inc. into common equity to help the firm withstand losses.
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The government already holds $52 billion of preferred shares in Citigroup, five times the bank’s market value as of Feb. 20.

So, according to this figure, Citigroup's market cap is about $10b, and 40% of $10b is hence $4b right? So the genius investors at the government would transform a $52b investment into $4b ! a loss of more than 90% for now, until more money is needed...

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Financial firms can apply to convert U.S. preferred stakes into common equity “to strengthen their capital structure,” said Treasury spokesman Isaac Baker, who declined to comment on specific banks. “We are open to considering a request to do so if the institution and its regulator believe it would promote the long-term stability of that institution, and if we believe it’s in the best interest of long-term stability of our economy and financial system,” Baker said.

Yes, stealing from the $-barer to give to banks will always be in the best interest of the financial system. I am sure about that too!

Feb. 23 (Bloomberg) -- American International Group Inc., the insurer bailed out by the U.S., may seek to convert preferred shares held by the government into common stock, a person familiar with the situation said.
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“We continue to work with the Federal Reserve Bank of New York to evaluate potential new alternatives for addressing AIG’s financial challenges,” said Christina Pretto, an AIG spokeswoman. She declined to comment further.
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The company may post a $60 billion loss, CNBC said today, citing a source it didn’t identify.
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The U.S. previously expanded the AIG bailout package to about $150 billion in November, when the insurer posted a third- quarter loss of $24.5 billion. The initial $85 billion federal credit line, provided in September when AIG agreed to turn over an 80 percent stake to the U.S., wasn’t enough to rescue the insurer.

Here again, the government investments are doing so great for the tax-payer! Let's see who's coming next. Maybe converting all the $700b TARP funds into common equity will be done before the end of the month. It would be the greatest and latest performance of Hank Paulson, the Alchemist who turn a $700b investment into $15b in just 3 months!

But wait a minute, there's more free money coming.

Feb. 23 (Bloomberg) -- U.S. financial regulators pledged to inject additional funds into the nation’s major banks to prevent their collapse and will this week begin examinations to determine whether they have enough capital.

Banks that cannot privately raise the additional capital they need after the so-called stress tests will get taxpayer money, regulators said in a statement in Washington. Government funds would be in the form of “mandatory convertible preferred shares” that would be exchanged into common equity “only as needed over time.” Stakes the Treasury has already bought will be eligible to be changed to convertible preferred shares.

I think we just heard about a wonderful story about preferred shares being converted into common equity, didn't we?

“The goal here is to incrementally provide as much support as necessary,” up to what could be called “temporary nationalization,” said Kevin Petrasic, a former official at the Office of Thrift Supervision, who is now a lawyer at the Paul, Hastings, Janofsky & Walker law firm in Washington.
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Citigroup gained 10 percent to $2.14 after plunging 44 percent last week on concern it can’t keep going without some form of nationalization that hurts shareholders. Bank of America rose 3.2 percent to $3.91.

“The market is voting and saying ‘this is a good thing, it looks like they’re not going to do anything stupid,’” said Michael Holland, who oversees assets worth $4 billion, including JPMorgan Chase & Co. shares, as chairman and founder of Holland & Co. in New York.

So much nonsense is beyond anything I could imagine. They are not going to anything stupid? The shares are rising because basically the government is giving free money to banks. So obviously, the values of the shares climb by that amount. And since it's not going to be enough yet, they are going to give more free money, AS MUCH AS NECESSARY they said, right? Let's see by the end of the year how many more trillions they have wasted this way, and how the fiat currencies of the world will look like compared to gold...

Also, if you read the full article, you'll see how the regulators, the FDIC, the SEC, the CEOs and the Gov are pledging that the banks are well capitalized, and yet, they are still injecting hundreds of billions of fresh money into the black hole...